Ave. Clo Fund, Ltd. v. Bank of Am., NA
| Decision Date | 26 July 2013 |
| Docket Number | No. 12–11815.,12–11815. |
| Citation | 723 F.3d 1287 |
| Parties | AVENUE CLO FUND, LTD., et al., Plaintiffs, Avenue CLO IV, Ltd., Avenue CLO V, Ltd., Avenue CLO VI, Ltd., Brigade Leveraged Capital Structures Fund, Ltd., Battalion CLO 2007–I Ltd., Caspian Capital Partners, L.P., Caspian Select Credit Master Fund, Ltd., ING Prime Rate Trust, ING Senior Income Fund, ING International (II)—Senior Bank Loans Euro, ING Investment Management CLO I, Ltd., ING Investment Management CLO II, Ltd., ING Investment Management CLO III, Ltd., ING Investment Management CLO IV, Ltd., ING Investment Management CLO V, Ltd., Venture II CDO 2002, Limited, Venture III CDO Limited, Venture IV CDO Limited, Venture V CDO Limited, Venture VI CDO Limited, Venture VII CDO Limited, Venture VIII CDO Limited, Venture IX CDO Limited, Vista Leveraged Income Fund, Veer Cash Flow CLO, Limited, Mariner LDC, Genesis CLO 2007–1 Ltd., Canpartners Investments IV, LLC, Scroggin Capital Management II, Scroggin International Fund Ltd., Scroggin Worldwide Fund Ltd., Caspian Alpha Long Credit Fund, L.P., Sola Ltd., Monarch Master Funding, Ltd., Solus Core Opportunities Master Fund Ltd., Cantor Fitzgerald Securities, Olympic CLO I, Ltd., Shasta CLO I, Ltd., Whitney CLO I Ltd., San Gabriel CLO I Ltd., Sierra CLO II Ltd., Normandy Hill Master Fund, L.P., SPCP Group, LLC, Venure Capital Master Fund, Ltd., Plaintiffs–Appellants, v. BANK OF AMERICA, NA, Defendant–Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
OPINION TEXT STARTS HERE
Paul D. Clement, Viet Dinh, George W. Hicks, Jr., Bancroft, PLLC, Washington, DC, Lorenz Michel Pruss, David A. Rothstein, Dimond, Kaplan & Rothstein, PA, Miami, FL, Kirk Dwight Dillman, Bruce Bennett, J. Michael Hennigan, Peter J. Most, McKool Smith, Sidney P. Levinson, Jones Day, Los Angeles, CA, Susan Williams Scann, Deaner, Deaner, Scann, Malan & Larsen, Las Vegas, NV, for Plaintiffs–Appellants.
Daniel L. Cantor, Jonathan Rosenberg, Bradley J. Butwin, William J. Sushon, O'Melveny & Myers, LLP, New York City, Walter Estes Dellinger, III, Jonathan D. Hacker, O'Melveny & Myers, LLP, Washington, DC, John B. Hutton, Greenberg Traurig, LLP, Fort Lauderdale, FL, Jamie Zysk Isani, Craig Vincent Rasile, Hunton & Williams, LLP, Miami, FL, for Defendant–Appellee.
Appeal from the United States District Court for the Southern District of Florida.
Before TJOFLAT and MARTIN, Circuit Judges, and BUCKLEW,* District Judge.
This case is one of many resulting from the failure of the project to build a Fontainebleau Resort in Las Vegas. The Fontainebleau Las Vegas was a hotel and casino development project on an approximately 24.4 acre parcel at the north end of the Las Vegas Strip. Here, a group of lenders and their successors in interest (Term Lenders) appeal the District Court's grant of summary judgment in favor of Bank of America. See In re Fontainebleau Las Vegas Contract Litigation, MDL No. 2106, No. 09–MD–02106–CIV, 2012 WL 930290, *1 (S.D.Fla. March 19, 2012). After careful review, and with the benefit of oral argument, we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.
This case is a contract dispute related to the funding of the development of the Fontainebleau Las Vegas (the Project). See In re Fontainebleau, 2012 WL 930290, at *1–49. On one side of the dispute are the Term Lenders, which loaned money to Fontainebleau Las Vegas, LLC and Fontainebleau Las Vegas II, LLC (the Borrowers). The Borrowers' parent company, Fontainebleau Resorts, LLC, was the developer of the Fontainebleau Las Vegas. On the other side of the dispute is Bank of America, which was the Disbursement Agent responsible under the funding agreements for disbursing the Term Lenders' funds to the Borrowers.
At the beginning, the Project's budget was $2.9 billion, with $1.85 billion to be funded by a senior secured debt facility (Senior Credit Facility).1 The Senior Credit Facility was set up by the Credit Agreement and consisted of three components: a $700 million Initial Term Loan Facility; a $350 million Delay Draw Term Loan Facility; and an $800 million Revolving Loan Facility.
The Term Lenders own Initial Term Loan and Delay Draw Term Loan notes. The Initial Term Loans were due on the closing date. The Delay Draw Term Loans and Revolving Loans were disbursed on a periodic basis under the terms of the Disbursement Agreement. Bank of America was the Disbursement Agent responsible for distributing the funds under the terms of the Disbursement Agreement.
The process set up for the Borrowers to get the money had a lot of moving parts. The Credit Agreement required the Borrowers to first submit a Notice of Borrowing to the Administrative Agent (Bank of America). This would prompt the Term Lenders and/or Revolving Lenders to give the money to the Administrative Agent. If the Notice of Borrowing included the proper information and the Borrowers submitted no more than one Notice per month, the Administrative Agent would transfer the loan funds into the Bank Proceeds Account. One difference between the Delay Draw Term Loans and Revolving Loans was that “the proceeds of each Delayed Draw Term Loan [was] applied first to repay in full any then outstanding Revolving Loans ... and second, to the extent of any excess, [was] credited to the Bank Proceeds Account.”
Once funds were in the Bank Proceeds Account, the Borrowers had to submit another request, called the Advance Request, which included a series of general representations and certifications, to the Disbursement Agent (Bank of America). When it received the Advance Request, Bank of America, as Disbursement Agent, as well as the Construction Consultant were required to review the Advance Request and determine whether all the required documentation was provided. The Construction Consultant was also required to deliver a certificate to Bank of America either approving or disapproving the Advance Request.
Under the Disbursement Agreement, the next step turned on whether the conditions precedent set forth in Article 3 of the Disbursement Agreement were satisfied.2 If the conditions precedent were met, Bank of America, in its role as Disbursement Agent, was required to execute an Advance Confirmation Notice and the funds would be disbursed to the Borrowers. If, on the other hand, the conditions precedent were not met then Bank of America was required to issue a Stop Funding Notice. Bank of America's duties as Disbursement Agent, with respect to determining whether the conditions precedent were or were not satisfied, is one of the disputes between the parties that will be the subject of our discussion in Part IV.A of this Order.
For each Advance Request from September 2008 through March 2009, Bank of America, as Disbursement Agent, received the required Advance Request certifications from the Borrowers, the Construction Consultant, the contractor, and the architect. Throughout this period Bank of America continued to disburse funds to the Borrowers and never issued a Stop Funding Notice.
However, the Term Lenders have pointed to a number of events, beginning in September 2008, which they say “caused the failures of multiple conditions precedent.” They delineate these events as: “the Lehman bankruptcy and the funding of the Retail Facility; Fontainebleau's failure to disclose anticipated Project costs; repudiation by the FDIC of First National Bank of Nevada's commitments; select lenders' failure to fund with respect to the March 2009 Advance; and the ‘untimely’ submission of the March 2009 Advance.” See In re Fontainebleau, 2012 WL 930290, at *15. How much Bank of America knew about these events is another source of dispute between the parties. That dispute will be the subject of our discussion in Part IV.B of this Order.
In April 2009, the “Total Revolving Commitments” were ended because the Revolving Lenders determined that there had been Events of Default. In May 2009, Bank of America commissioned a “cost-complete review” of the Project, which revealed that Fontainebleau had been concealing cost overruns. Finally, on June 9, 2009, the Borrowers and some of their affiliates filed for bankruptcy.
On January 15, 2010, the Term Lenders filed a Second Amended Complaint alleging, as relevant to this appeal, that Bank of America breached the Disbursement Agreement.3 Following discovery, the parties filed cross-motions for summary judgment.
The District Court granted summary judgment in favor of Bank of America because it determined that “the Term Lenders, with all inferences in their favor, have failed to raise a genuine issue of material fact as to whether Bank of America, as Disbursement Agent or Bank Agent, breached the Disbursement Agreement, or whether Bank of America acted with bad faith, gross negligence, or willful misconduct.” In re Fontainebleau, 2012 WL 930290, at *26. In reaching that conclusion, the District Court made several preliminary findings. First, the District Court held that “[i]n determining whether the conditions precedent to an Advance Request were satisfied, Bank of America was explicitly authorized to rely on Fontainebleau's certifications ... and was explicitly not required to conduct ‘any independent investigation as to the accuracy, veracity, or completeness' of those certifications.” Id. at *28. Second, the District Court determined that “Bank of America, as Disbursement Agent, did not act in bad faith or with gross negligence or willful misconduct in performing its duties under the Disbursement Agreement.” Id. at *34. Third, the District Court found that there was no evidence on summary judgment that Bank of America breached the Disbursement Agreement by disbursing funds despite having actual knowledge that a condition precedent was not satisfied. Id. at * 35.
The Term Lenders timely filed a Notice of Appeal on March...
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